THE GREAT DEPRESSION AND THE NEW DEAL Unit 9. Causes of the Great Depression.

THE GREAT DEPRESSION AND THE NEW DEAL

Unit 9

Causes of the Great Depression

Guiding Questions

What economic choices caused the economy to become unstable in the late 1920s?

How did the stock market crash trigger a chain of events that led to the Depression?

What were the underlying conditions that led to the collapse of the U.S. economy?

Terms to Know

Stock market Bull market Speculation Margin Margin call Bank run Installment

Election of 1928

Nominee

Democrats

Alfred E. Smith

(Governor of N.Y.)

• First Roman Catholic to run for president from a major political party

• Religious beliefs became a campaign issue

• Protestants believed the Roman Catholic church would have inappropriate influence in the U.S.

Republicans

Herbert Hoover

(Secretary of

Commerce)

• Former head of the Food Administration

• Hoover and the Republicans took credit for the prosperity of the 1920s

• Easily won the election

Stock Market Soars

Bull market Long period of rising stock prices Convinced many people to invest in stocks ~10% of Americans households held stock

Buyers began practicing speculation Betting that prices would keep rising Did not look carefully at company earnings or profits

Buyers began buying on margin Making only a small cash down payment(10%) Stockbroker loaned the other money to the buyer and

charged interests When prices began to fall, a broker could issue a margin call

Demand that the investor repay the loan at once

Stock Market Crashes

Monday, Oct. 2, 1929 Stock market began to drop greatly Stockbrokers made margin calls Many customers sold stocks, making the market drop even

more Tuesday, Oct. 29, 1929 (Black Tuesday)

More than 16 million shares of stock were sold Industrial index (value of leading industrial companies0

dropped by 10% Mid-Nov. 1929

Market price of stocks had dropped by more than 1/3 Total loss of about $30 billion People had loss their savings, others in huge debts

Bank Failures

Banks were hurt by stock market crash Loaned billions of dollars to stock speculators Invested depositor’s money in the stock market

Banks greatly reduced the number of loans made People and businesses couldn’t get loans Caused economy to enter recession

Banks failed (closed) Government did not insure deposits People stopped trusting banks Bank runs became widespread

Depositors decided to take their money out of the bank at the same time

Most banks did not keep enough reserve to meet need’s of depositors if a run was made

By 1932, ~25% of U.S. banks had gone out of business

Underlying Causes of Great Depression

Overproduction and Income Inequality

Tariffs and Decline of Exports

Federal Reserve Policy

• About 2/3 of families earned less than $2,500 a year

• Did not have money to buy new goods

• Many farmers went bankrupt

• Buying on installment plan made people unable to afford new goods (overtime)

• Manufactures had to cut production and lay off workers

• No unemployment insurance

• More than 26,000 businesses failed in 1930

• U.S. banks were making loans to speculators instead of foreign companies

• Lack of loans caused European companies to buy fewer American products

• Congress raised tariffs to protect American industry

• Hawley-Smoot Tariff- raised the average tariff rate to the highest level in U.S. history

• European countries raised tariffs in response

• By 1932, U.S. exports had fallen to ½ the level it had been in 1929

• Federal Reserve kept interest rates very low throughout the 1920s

• Low rates encouraged member banks to make risky loans

• Low rate led business leaders to think economy was still growing

• Borrowed more money to increase production, led to overproduction

• Federal Reserve raised interest rates after workers began being laid off (made it harder for people to get loans)

Discussion Questions

What do you think could have been done to prevent the financial crisis?

What do you think would be the correct response to such a crisis?

Life During the Great Depression

Guiding Questions

How did the economic changes affect everyday life during the 1930s?

Terms to Know

Hobo Shantytown Soup kitchen Bread line

The Depression Worsens

In 1930, 1,352 banks suspended operations

30,000 companies went out of business in 1932 alone

By 1933, the unemployment rate was 25%

People Struggle to Survive

May people lost their homes Had to wait in breadlines or visit soup kitchens in order to have

food Many homeless built small shacks on unused or public lands

Shantytowns- small neighborhoods made up entirely of shacks “Hoovervilles”- blamed Hoover for the hard times

Hoboes, mostly boys and young men, snuck into open boxcars or freight trains traveling trying to find jobs

Suicide rate rose more than 30% from 1928-1932 Americans compromised and made sacrifices that would affect

them the rest of their lives Stopped going to dentist/doctpr Young people put off going to college, getting married, having

children

The Depression and Immigrants Many immigrants returned to their home

Repatriation Could not find jobs

Federal government sped up deportation of some immigrants Sent back those immigrants that had

broken the law

The Dust Bowl

Long period of dry weather, turned the Great Plains soil into dust

Dust storms were very common 50 dust storms a year during the 1930’s Dust made sky dark for hundreds of miles People and animals caught in storms would often

die because they could not breath Many farmers moved to California in hopes of

a better life “Okies” Life was just as hard

The Great Depression and American Culture

Movies Radio Literature Photography & Art

• More than 60 million Americans went to movies each week

• Comedies and cartoons very popular (Snow White (1937))

• Wizard of Oz (1939)

• Gone with the Wind (1939)

• Hattie McDaniel became first African American to win an Academy Award (Best Supporting Actress)

• Tens of millions of people listened to the

• radio each day• Comedian Jack

Benny was very popular

• Daytime dramas, soap operas, continued their storylines from day to day (The Guiding Light)

• People listened to music as well

• Often told the stories of homeless, jobless people

• Used new techniques such as stream of consciousness (puts dreams and daydreams into words)

• Life magazine • Showed how

the Great Depression affected average Americans

• Work emphasized traditional American values, especially rural Midwestern and Southern

• American Gothic by Grant Wood

Discussion Questions

What effect did the Dust Bowl have on life in the Great Plains?

Why might people have enjoyed lighthearted entertainment during the Great Depression?

Hoover’s Response to the Depression

Guiding Questions

How did President Hoover’s governing philosophy influence his efforts to combat the Great Depression?

Why and how did citizens try to change government policy during the Depression’s early years?

Terms to Know

Public works Relief

Promoting Recovery

Hoover believed “rugged individualism” would keep economy moving American’s ability to rely on themselves, not the

government Hoover believed socialism was bad for economies Hoover asked consumers and business leaders to be

reasonable and not let fear guide their actions Organized a series of talks including heads of backs,

railroads, and other big businesses Increased funding for public works

Building projects paid for by the government Was not enough to increase employment Did not want to raise taxes or run a budget deficit

Efforts to Rescue Banks

Asked the Federal Reserve Board to make more money available (allow banks to make more loans) Federal Reserve refuse

Set up the National Credit Corporation(1931) Set aside money for banks that were having financial

problems Was not effective

Reconstruction Finance Corporation (1932) Purpose was to make loans to businesses By 1932, more than $238 million of loans were made to

banks, railroads, and building-and-loan associations Did not increase lending enough

Direct Relief for Citizens

Hoover was opposed to federal government giving direct relief Money given directly to poor families Believed only state and local governments should

give relief Charities should fill other needs

Hoover reluctantly signed the Emergency Relief and Construction Act (1932) Called for $1.5 billion for public works and for $300

million in emergency loans to states for direct relief First time in U.S. history federal government was

giving direct relief money

The Bonus Army

In May 1932, several hundred veterans began marching to Washington, D.C. Tried to convince Congress to pass a bill authorizing a $1,000 bonus for each

veteran of WWI By time they arrived in Washington, there were about 15,000

Lived in Hoovervilles outside Washington Senate voted down bill Some went home, but others remained in camps or moving into empty buildings

downtown Hoover ordered the police to make the veterans leave the buildings in late

July Police killed 2 veterans

General MacArthur sent soldiers and tanks to clear camps Hoover told him to allow those in camps to stay Soldiers burned shacks, threw tear gas at veterans who did not leave fast

enough Newspapers and radio reporters covered the incident and it greatly hurt

Hoover’s image and his campaign for the 1932 presidency

Discussion Questions

Why do you think that Hoover’s efforts ultimately failed?

Could the soldiers of the Bonus Army have used a different method to get what they wanted?

The First New Deal

Guiding Questions

What qualities make an effective leader? How did New Deal legislation differ from

President Hoover’s attempts to combat the Depression?

Why are the first hundred days so important for a president?

Why did Roosevelt broadcast “fireside chats”?

How did New Deal legislation try to stabilize agriculture and industry?

Terms to know

Polio Gold standard Bank holiday Fireside chats Fundamental Ideology

FDR Becomes President

Democratic governor of New York Former assistant secretary of the navy under

Woodrow Wilson Oversaw the creation of the first state relief

agency to help unemployed Very popular

Energetic, hopeful, confident Determined(paralyzed from waist down (polio))

Won election of 1932 in a landslide Won electoral vote in all but 6 states Promised people a “New Deal”

Roosevelt’s Inauguration

By Roosevelt’s inauguration, most of nation’s banks had closed

25% unemployment rate Roosevelt had to get Americans to feel

confident again Nation needed to take action and stop

being afraid “The only thing we have to fear is fear

itself”

The Hundred Days

Congress passed 15 major acts to try and fix the economy between March 9 and June 16, 1933 These programs made up the First New

Deal

Emergency Banking Act

Roosevelt knew that getting people to trust the banks was the most important issue Banks had to be open for other programs to work

Enacted a national bank holiday Closed all the banks in the United States

Stated that federal examiners would study the nation’s banks When banks were deemed strong enough to open, they

were issued a Treasury Dept. license and reopened Roosevelt gave his first “fireside chat” on March 12

Radio address to the American people Ensured people the banks were safe and urged them to

deposit their money back in the banks

Bank and Stock Market Legislation

Securities Act of 1933

Securities Exchange Act of

1934Glass-Steagall Act

• Requires companies selling stocks and bonds provide complete and truthful information to investors

• Created the Securities Exchange Commission (SEC)

• Regulated the stock market

• Designed to stop fraud

• Separated commercial banking from investment banking

• Commercial banks could no longer risk the money people deposited through stock speculation

• Created the Federal Deposit Insurance Corporation

• Provides government insurance for bank deposits (greatly increased public confidence)

Mortgage and Debt Relief

Home Owner’s Loan Corporation

Farm Credit Administration

• Bought loans of homeowners behind on their mortgages

• Reorganized the loans to give people more time to repay and lower interest rates

• Helped refinance farmer’s loans

• May have slowed economic recovery

• Made money less available to lend to more efficient businesses

Farming and Industry ReformAgricultural Adjustment Act National Industrial Recovery

Act• Pay farmers not to keep certain

livestock, grow certain crops, and produce dairy products

• Farmers received more than $1 billion in support payments

• Made food prices rise• Thousands of tenant farmers,

mostly African Americans, lost their jobs and homes

• Allowed the National Recovery Administration to suspend antitrust laws

• Allowed business, workers, and government to work together with rules called codes of fair competition

• Set prices and minimum wages, shortened workers’ hours to create more jobs, allowed unionization

• Employers disliked NRA because it allowed workers to form unions

• Argued that paying minimum wages forced them to raise prices

• Led to a decline of industrial production

• Ruled unconstitutional in 1935* Roosevelt and his advisers believed prices were too low and production was too high

Relief Programs (Employment)

Civilian Conservation

Corps

Federal Emergency Relief Act

Public Works Administration

Civil Works Administration

• Gave jobs to unemployed men between 18-25 years old

• Supervised by the forestry service (planted trees, fought forest fires, built reservoirs)

• Usually worked 6-12 months

• Taught more than 40,000 workers to read/write

• Total of 3 million workers

• Gave money to pay for state and local relief projects

• Headed by former social worker Harry Hopkins

• Spent $5 million on relief projects

• Many critics complained projects made no sense in long run

• Hopkins was not worried about long run

• Put people to work from the construction industry

• Buiilt highways, dams, schools, and other government structures

• Gave contracts to companies who could not discriminate against African Americans

• Hired workers directly (FERA and PWA were not very effective)

• Employed over 4 million people

• Built or improved airports, roads, schools, playgrouds, parks

• Spent roughly $1 billion in just 5 months (winter)

• Roosevelt insisted CWA be ended in spring

First New Deal Success

Programs showed Roosevelt’s energy and willingness to experiment New Deal programs did not pull country out

of depression Improved banking system Increased availability of loans Inspired hope and restored American’s

faith in their nation

Discussion Questions

Roosevelt received almost 58 percent of the popular vote. Why do you think most people voted for him rather than Hoover?

Why did President Roosevelt take his message about the banks directly to the people?

Why do you think Roosevelt was concerned about people relying on the government to create jobs?

The Second New Deal

Guiding Questions

Why did President Roosevelt decide to introduce new legislation to fight the Depression?

How did the Wagner Act and Social Security Act affect Americans?

What led to the re-election of Roosevelt? What impact has the New Deal

legislation had on federal and state governments?

Terms to Know

Deficit spending Binding arbitration Sit-down strike Court-packing Broker state Safety net Mediate

Roosevelt Faces Criticism

Right-Wing (Republicans) Believed New Deal regulated business to tightly Gave federal government too much power over the

states Very opposed to deficit-spending

Spending more than you take in Left-Wing (Democrats)

Believed New Deal hadn’t gone far enough More government involvement in managing

economy Move money from rich to middle-income and poor

Americans

Democratic Opposition

Huey Long Father Charles Coughlin

Francis Townsend

• Former governor of Louisiana

• Built and improved schools, colleges, hospitals, bridges, and roads

• Very popular in LA• Built a very powerful

and corrupt political machine

• Became a U.S. Senator in 1934

• Established the Share Our Wealth Society to work to provide a good life for ordinary people

• Planned to run for president in 1936, but was assassinated in 1935

• Catholic priest and popular radio host from Detroit

• Strongly supported the New Deal but grew impatient with its moderate changes

• Wanted to decrease the value of money

• Put the banking system under the control of the national government

• Began supporting ideas of Hitler and Mussolini in his radio broadcasts

• Doctor from California• Proposed the federal

government pay people over 60 years old $200 a month, for those people to stop working

• Had to spend all the money every month

• Believed plan would increase spending and make more jobs available for the unemployed

Second New Deal

Launched in 1935 Purpose was to generate greater

economic recovery First New Deal did not alleviate problems

from the Depression More than 10 million still unemployed Nation’s total income was about ½ of what

it was inn 1929

Supreme Court’s Role

Schechter Poultry Corporation v. United States Declared the authority of the National

Recovery Administration was unconstitutional

Congress could not delegate its legislative powers to the executive branch

Roosevelt knew he needed a new series of programs to keep voter’s confidence

Told Congress they could not go home until they passed his new bills

Works Progress Administration New Deal’s largest public works program (1935)

Employed 8.5 million workers from 1935-1941 Spent more than $11 billion to build roads, airports, bridges,

parks WPA program, Federal Number One, financed artists,

musicians, theater people, and writers Federal Art Project

Created wall paintings and sculptures for public buildings Federal Writers Project

Recorded the stories of formerly enslaved people and others whose voices had not often been heard

Federal Theatre Project Wrote and staged plays

Federal Music Project Set up orchestras and smaller musical groups

The Wagner Act (National Labor Relations Act)

Guaranteed the right to unionize and bargain as a group Knew unions were vital to keeping them in power Thought high union wages would help pull country out of

depression Established the National Labor Relations Board

Organized elections in factories with secret ballots to decide whether workers wanted to unionize

Investigated employers’ actions and stopped unfair practices

Set up binding arbitration Union members could take their complaints about

employers to a neutral party who would listen to both sides and decide on the issues

Wagner Act Leads to Labor Activity

Committee for Industrial

Organization

United Auto Workers

Other Labor Activity

• Formed by John L. Lewis in 1935

• Began trying to organize unions that included both skilled and unskilled workers in particular industries (Steel/Auto)

• Used sit-down strikes as a common tactic (employers stopped working and refused to leave)

• Changed name to Congress of Industrial Organization in 1938

• Staged a sit-down strike against General Motors in late December 1936

• Violence began when police used tear gas on strikers, but strike held

• General Motors recognized the UAW on Feb. 11, 1937

• Became one of the most powerful unions in the united States

• In march 1937, U.S. Steel recognized the CIO’s steelworker union

• By 1941, steelworker’s union won contracts throughout steel industry

• Union membership tripled from 3 to 9 million from 1933 to 1939

Social Security Act

Provided financial security to older Americans, unemployed workers, people with disabilities, and poor mothers with dependent children Workers pay a tax in order to receive benefits

Core of the Social Security is the monthly retirement benefit Collect once you retire (67 years old) Can begin collecting at 62 (75%)

Critics did not like fact money came from taxes imposed on workers and employers

Election of 1936

By 1936, New Deal programs had helped millions of voters Democratic Party coalition developed

Included African Americans, farmers, workers, immigrants, women, progressives, and intellectuals

Many former Republican supporters changed to Democratic Party because of the affect the New Deal had on their lives

Republicans nominated Kansas governor Alfred Landon to challenge Roosevelt

Roosevelt won election More than 60% of the popular vote

Roosevelt’s Court Packing Plan Supreme Court ruled the Agricultural Adjustment

Act was unconstitutional (1936) Also prepared to make decisions on Social Security

and Wagner Act Roosevelt tried to change the Court’s political

power Wanted to increase the number of justices Allow president to appoint an additional justice if a

sitting justice had served 10 years and did not retire within six months of reaching 70 years old

Would have allowed Roosevelt to appoint 6 new justices

Court-Packing Damages Democratic Party

Democrats were split on issue Southern Democrats worried new justices would end laws

allowing segregation African American leaders worried future justices might oppose

civil rights Many Americans though plan would give president too much

power Supreme Court narrowly approved the constitutionality of the

Wagner and Social Security Acts (1937) A conservative justice left soon after

Roosevelt appointed a judge who supported the New Deal Court-packing bill ultimately failed, but hurt Roosevelt’s

reputation Caused Conservative Democrats to work with Republicans to

block any additional New Deal proposals

Recession of 1937

Roosevelt made large cuts to the WPA and PWA Worried about debt

By 1937, 2 million people were unemployed

Leaders of the WPA and PWA used Keynesianism to encourage Roosevelt to spend Idea that government should spend a lot of

money during a recession to get the economy going

In 1938, Roosevelt asked Congress for $3.75 billion for the PWA, WPA, and other programs

Final New Deal Reforms

National Housing Act

Farm Security Administration

Fair Labor Standards Act

• Created the United States Housing Authority

• Received $500 million in funding

• Used money to provide loans to builders who agreed to build low-cost housing

• Gave loans to tenant farmers who had lost their jobs when farmers stopped using their land for growing crops

• Tenants used the loans to buy farms

• Made child labor illegal

• Set 44 hours as the standard work week

• Set the first federal minimum wage

New Deal Ends

The Recession of 1937 allowed Republicans to win seats in Congress during the 1938 mid-term elections

Conservative Democrats, along with Republicans began blocking further New Deal legislation

By 1939, New Deal era was over

Legacy of the New Deal

Did not end the Depression, but gave many Americans a stronger sense of security and stability

Set up what many call the broker state Government works out conflicts among different groups

(mediates) Started a new public attitude toward government

Expected government to provide a “safety net” for citizens Safeguards and relief programs to protect people against

economic disaster Continuing debate over how much government should

intervene in society Many critics argue New Deal made the federal government

too powerful

Discussion Questions

Do you agree or disagree with critics who believe government should not assist artists, writers, and musicians?

What was the difference between the Public Works Administration in the First New Deal and the Works Progress Administration in the Second New Deal?

What were some of the main reasons that the Democratic Party attracted new supporters?

Why might the court-packing plan be considered Roosevelt’s first major mistake?

How do Keynesian economics continue to influence the United States today?